Downgrades dominate S&P large cap review

A number of downgrades feature in Standard & Poor’s Fund Services’ (S&P’s) review of four peer groups in its latest Australian equities large-cap peer group release.

Most ratings within the peer groups were affirmed but three funds were downgraded, along with one upgrade, one new rating and one fund reinstated from being ‘on hold’, according to S&P’s review of the income, multi-manager, quantitative, and unconstrained groups.

BT Geared Imputation W and BT Imputation Sh W funds were downgraded from the top five star rating to four stars because S&P has not yet had sufficient opportunity to build full conviction in new managers Jim Taylor and Andrew Waddington, S&P stated.

The CFS Imputation Fund was upgraded to four stars, primarily due to S&P’s strong confidence in the depth of the team’s industry and stock research, as well as improved stability under the leadership of Marcus Fanning, S&P stated.

The CFS Acadian Wholesale Australian Equity fund was also downgraded to three stars based on S&P’s lowered conviction in its ability to meet its performance targets.

“We did not identify a standout quantitative or multi-manager strategy, reflecting our modest conviction levels in these two peer groups,” said S&P Fund Services analyst James Gunn.

Quantitative managers have generally delivered improved performance outcomes over the past 18 months, and demonstrated a strong focus on implementing new and unique signals to address the problem of the “crowded trade”, where a large weight of quantitative money chases the same investment themes, he said.

“Nevertheless, we believe these enhancements need to be proven in a live environment over a longer period and currently we don't believe one manager is necessarily ahead of the pack,” he added.